Akash Agarwal had a rocky start when he immigrated to Boston from England: Although Harvard Business School had accepted him into its MBA program, banks denied him a student loan because he had no credit history in the U.S.
Agarwal eventually scraped together scholarships, grants, and family contributions and earned his MBA. And when banks recently began toughening their credit requirements— some dropping student loans entirely—he decided to pay it forward and cofound GreenNote, a new for-profit company that helps students with no credit history, cosigner, or citizenship get college loans at a low 6.8 percent annual interest rate. (Banks charge between 8.5 percent and 20 percent.) The hitch is, students have to raise the money themselves, through their social networks.
GreenNote applicants first fill out an online profile describing their academic goals. Then they ask friends, family, friends of family, and others to pledge at least $100. Once the student has raised a minimum of $1,000, GreenNote collects the money, creates promissory notes between students and lenders, and sends the money to the school.
GreenNote makes money by charging an initial fee of 2 percent of the loan. It collects an additional 1 percent interest charge on the outstanding principal, with the remaining 5.8 percent interest charge going to the lender. (Interest starts accruing as soon as the money is sent to the college.)
When students begin paying back the loan—they can defer for five years, and must repay in full within 10 years—GreenNote makes monthly deposits to the lenders’ bank account. If the student defaults, GreenNote will provide collections services and report delinquencies to credit agencies.
So far, GreenNote has $10 million in loan requests and its students are attending, or hope to attend, 700 schools nationwide. Agarwal says his biggest job now is to help students widen their sources of capital. “We’ve been meeting with community foundations, schools’ alumni associations, nonprofits. We’re looking to create matching or complementary loan programs and convince these organizations that this is another way of doing a mission-related investment in education.”
Education, he tells them, is the best investment—especially when you’ve raised the funds yourself. “This creates a level of responsibility that they may not have had before, and takes away the entitlement,” Agarwal says. “Also, I think having done this successfully, and knowing that people believe in them, boosts students’ confidence, and then they’ll go through with flying colors.”
Read more stories by Jennifer Roberts.